Congress split over solution to student loan problem

Students listen to U.S. President Barack Obama talk about the rising costs of student loans while at the University of Iowa in Iowa City. (REUTERS/Larry Downing)

One way or another, the Congress seems certain to prevent a low interest rate for federal student loans from doubling on July 1, aides and analysts say, largely because lawmakers do not want to rile young voters before the November 6 elections.

Yet it remains unclear how – or even if – Congress will pay for a one-year-renewal of the 3.4 percent rate for about 7.4 million students, which would cost about $6 billion.

Senate Republicans on Tuesday are expected to block a proposal by President Barack Obama’s Democrats to cover the cost by plugging what they call a tax loophole for the rich.

Senate Democrats are expected to reject a bill passed two weeks ago by the Republican-led House of Representatives to fund it by taking money away from Obama’s healthcare overhaul.

Regardless, members of both sides voice confidence that someway, somehow, a bipartisan agreement will be reached before July 1, when the rate is set to double to 6.4 percent on subsidized student “Stafford” loans.

A senior Democratic aide predicted that bipartisan talks would begin on Tuesday after the anticipated Republican blocking of the Democratic funding proposal, and the Democratic rejection of the House-passed Republican bill.

A top Republican aide agreed, adding, “We have time. I fully expect us to reach a deal.”

U.S. Education Secretary Arne Duncan, appearing on MSNBC’s “Morning Joe Show,” said on Monday, “We have to make sure that the chance to go to college remains a critical American dream.

“What we need to do is work in a bipartisan way,” Duncan said. “The general public is tired of the disfunctionality of Congress. If there’s anything that Congress can unite and do in a bipartisan way it has to be around education.”

Greg Valliere of the Potomac Research Group, a private firm that tracks Congress for investors, said, “Congress will get a deal because the political consequences of not getting a deal would be huge with younger voters.”

Strong support from young voters helped propel Obama to victory when he ran for president in 2008. He is hoping to mobilize that block of voters again this year.

Valliere said Congress may decide to renew the rate without paying for it, noting many in Washington have become weary of government spending cuts.

“The anti-austerity mood is growing in Washington, not just in Europe,” Valliere said. “The path of least resistance is to extend the student loan program without offsets.”

A senior aide said any possibility of a refusal by Republicans to go along with renewing the low-rate ended two weeks ago when Obama’s presumptive Republican presidential challenger, Mitt Romney, came out in favor of renewal.

Despite claims to the contrary by Republicans, Democrats argue that Republicans had little, if any interest, in extending the 3.4 percent rate until Obama hammered them on it with campaign-style speeches on college campuses in recent weeks.

Obama took his effort to Twitter on Monday with a tweet saying “The Senate votes tomorrow on student loan rates-tell them to help keep college affordable” with the hash tag #DontDoubleMyRate.

House Speaker John Boehner has accused Obama of political grandstanding. But Boehner has also said that a way must be found to renew the low-rate, given that half of all recent college graduates are unemployed or underemployed because, he says, of Obama’s economic policies.

Not all members of Boehner’s party agree that the rate should be renewed.

Thirty Republicans broke ranks and voted against the House bill last month after the Club for Growth, an influential conservative advocacy group, came out against it.

“The government should not be in the business of subsidizing student loans,” the organization said.

Heck, the win-win solution for everybody, it seems to me, is just to forgive every single penny of every outstanding Federal student loan.

Liberals win because, well, some OWS folks have been arguing for this anyway.

Conservatives win because it will destroy the Department of Education and deny Big Government $1 trillion in future income.

Graduates win for obvious reasons.

And then whoever is president at the time will likely win too, because all that loan money will go back into the economy buying stuff, and the tenant of the Oval Office can take credit for whatever economic recovery this might engender.

So what about paying back the entities (banks, credit unions, etc)that actually forked over the money to begin with? Fractional reserve banking aside, they loaned deposits to the students and the govt only guaranteed those loans… which means, I guess, if the students are forgiven then we taxpayers get to pay them off.

Almandine: While I meant that post as a joke, on a more serious note, guaranteed loans by private banks aren’t the only source of student loans; a lot of it comes outright from taxpayer dollars, via money appropriated by Congress to the Department of Education, funneled down through their “contractors” Direct Loans and MOHELA. It’s likely that ultimately paying back the private banks wouldn’t cost taxpayers any more than they’re already shelling out for the first kind.

However, that said, if this kind of forgiveness actually happened, a lot of institutions and people might indeed get a haircut because Federal student loans are actually an investment vehicle. As far as I know those investments AREN’T guaranteed, any more than most other kinds.

Thanks Danny, but I think you’ll find that MOHELA is a loan servicer, not a loan provider. That is most generally left up to bona fide private sector lenders, with notable exceptions. The Federal govt does subsidize student loans and actually guarantees the Stafford and Perkins loans among others. So yeah, forgiveness equals a crew cut.

LOL, Danny!…That was great!…The way things unfotunately seem to work now, only the big banks get their loans forgiven, and they get the bailouts…..but for hapless students, it’s either pay up or die trying.

Sometimes I think Congressional gridlock is a good thing. As this site’s slogan states, “Nothing is safe … ” but when they can’t accomplish anything, they, at the very least, can’t deliberately make anything worse.

J.

PS – Of course, many problems do get worse the longer you do nothing about them. See home or boat (or, in a larger sense, infrastructure) maintenance. J.

“…Boehner has also said that a way must be found to renew the low-rate, given that half of all recent college graduates are unemployed or underemployed…”

Does that statement not argue against more student loans… as in, what is the value of a “college education”? That is, why do we need more college graduates if those we have can’t get a job?

Similarly, why do we need so many (4,084) colleges and universities in this country? Is that number (over 80 per state) not a clear indication that higher education has become bloated?

Is it also not clear that the number of colleges and the cost of a college education have skyrocketed because of the monetary inflation in higher education… driven by the increase in govt support of the college student population?

And ALL of this at a time when the wages and salaries available to US workers are in decline.

Who in his right mind would take on any education debt – no matter the interest costs – without this drumbeat of political gamesmanship that makes not doing so seem essentially UnAmerican?